term deposit as 20% collateral for mortgage

[cool bananas]

Will any financial institutions take a term deposit instead of a cash deposit as security for a mortgage for an IP?

Suppose an IP for 200K, and bank places a caveat over a 40K term deposit (20%) to replace cash deposit, and you obtain 160K loan. My thinking here is that you can kill two birds with one stone.....that is the mortgage is at 160K plus you boost your income since you have rent and term deposit cash flow coming in.

Rolf, have you seen this done before?

CB

 

[Garry K]

Hi Cool.

You seem to "want your cake and eat it too".

You say Investment property costs $200K, borrow $160K and have $40K on TD.

If you leave the $40K on term deposit, how to you pay the seller the $200K? You have a loan of $160K + ????

I think perhaps you mean that you borrow the full amount, $200K, leave your $40K on TD - which is used as security for the loan as top up, to meet Loan to Value Ratio of 80%.

Option 2 is to use the $40K as a deposit, paid to seller, and a loan of $160K. Bank just has IP as security.

Consider that if you put your $40K on TD with Bank, probably get about 4% interest. When you borrow the $200K, you will probably be paying about 6.5% - so on the face of it you are losing 2.5%.

Taxation then comes into play as major consideration. Your loan interest is tax deductible, so "real" cost is less than 6.5%. You will need to look at your personal taxation situation.


An advantage of having the $40K on TD is that later on, assuming you get some capital growth on IP ( which improves LVR), you may be able to withdraw part or all of the TD money and use for other purposes or in event of emergency.

Geekay

 

[cool bananas]

oki doki, got it!

 

[bundy1964]

Hi Cool

I think my credit union will look at doing that.

http://www.savingsloans.com.au/loans_invest_products.asp#2

Edit need to click on apply here to see the pdf file.

* kicks stubborn computer *

bundy

 

[Rolf Latham]

Hiya

All funders that take TDs will look at using them as 100 % security.

Commonly used where one has fast growing IPS OR ones financial situation will worsen in the future hence not wanting to lock away the 20 % in the property

ta

rolf